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How Uganda lost out in lucrative Tullow oil deal

Tullow Executive Chairperson, Dorothy Thompson

NEWS ANALYSIS |  THE INDEPENDENT |  Uganda is expected to get USD 14.6 million (about sh55 billion) as capital gains tax on the sale of oil and gas interests in Uganda by Tullow Oil to French multinational oil and gas company TOTAL SE. 

The long-drawn-out process of Tullow Oil exiting Uganda has now entered the final chapter, after the Ugandan government and Uganda Revenue Authority together with the two companies reached a binding agreement on the taxes that should be paid.

Tullow discovered huge reserves of oil in the Lake Albert basin in Western Uganda starting 2006.  It had entered Uganda by acquiring the exploration interests of Energy Africa 2004, and in 2007, it grew its fortunes when it acquired the licenses of Australian explorer, Hardman Resources in 2007.     

But the development of the industry has been delayed by disagreements over legal and tax regimes.  In 2010, it was not a smooth transaction when Tullow acquired the interests of Heritage Oil for USD 1.45 billion. The government slapped a USD 434 million (1.62 trillion Shillings) Capital Gains Tax from the transaction.     

The tax is charged on the value of the transaction if the asset in question has gained value over time, but it is included in the business income tax. After a long two-year battle, involving suits in Uganda’s courts and tax appeals tribunal, as well as arbitration in a London court, Uganda won the case.     

By then, more than 1.7 billion barrels of oil had been discovered in the rift valley. At this same time, Heritage had deposited USD 121 million (451 billion shillings) with URA as part of the tax in dispute but later refused to pay the balance when the ruling was made.     

Government forced Tullow to pay the balance of USD 313 million (1.168 trillion Shillings), before allowing it to get new and bigger partners, Total of France and the Chinese group CNOOC to join the project.     

To sale two-thirds of its interests to the new partners, the government assessed a Capital Gains Tax of USD 472 million (1.76 trillion Shillings) on the transaction valued at USD 2.9 billion (10.8 trillion Shillings).   However, the Tax Appeals Tribunal revised this amount to USD 407 million (1.9 trillion Shillings).   

In 2017, as Uganda insisted on building a refinery on top of a crude export pipeline, Tullow Uganda’s parent company, Tullow Oil Plc started experiencing cash problems and decided to sell its entire assets in Uganda, to pay off debts worth more than USD 900 million (4.4 trillion Shillings).

Museveni (left) and Magufuli (right) at signing of the pipeline deal. PHOTO PPU

Tullow and the three partners found themselves as at loggerheads with the state after it changed the route of the export pipeline to Tanzania’s port of Tanga, away from Lamu in Kenya. Tullow eventually decided to sell its Ugandan assets to Total, leading to another battle over taxes payable on the transaction then valued at 900 million dollars.     

Uganda assessed the tax at USD 300 million (1.4 trillion Shillings), which is one-third of the transaction value, but Tullow disputed this saying the transaction was not taxable. Two years of negotiations saw the government reduce the bill to USD 167 million (632.5 billion Shillings), while Tullow insisted on paying 85 million (317 billion shillings).    

If the transaction had been concluded in 2019, the government would have received up to USD 85 million (317 billion Shillings).  However, in April 2020, a new deal was reached at a revised value USD 575 million (2.8 trillion Shillings) down from the initial USD 900 million (4.4 trillion Shillings), while the capital gains tax payable dropped to USD 14.6 million (54.5 billion shillings), according to Tullow Oil plc Head of Corporate Affairs, George Cazenove.       

After 14 years of exploring for oil in Uganda, Tullow Oil is exiting the country which now has 6.5 billion barrels of oil confirmed and 1.7 billion recoverable, according to the government.     

Tullow Executive Chairperson, Dorothy Thompson says the sale of assets in Africa, particularly in Uganda and Kenya is targeted at raising at least USD 1 billion to improve the company’s financial position. 

“This is important for Tullow and forms the first step for our programme of portfolio management. It represents an excellent start towards our previously announced target of raising USD 1 billion.  Tullow’s strategy to move to a more conservative capital structure,” she said.

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URN

2 comments

  1. Ndyomugyenyi hillary

    Thanx for being a hard working, u have managed to streamline what has been impossible

  2. This is a syndicate. Tillie must have sat with Total. Why? I am reliably informed that the president has been deal darling due to failure to reach agreement on what should be his personal cut. That the president on several occasions has skipped scheduled meetings with the chairman of Total. The last one being in kasese where the chairman of Total was later informed that the president was in Tanzania. This didn’t not go well with the chairman who told off the president that Total was bigger than the country he ruled.
    That the president was asking for a personal cut of $1 billion. I am also reliably informed that Tillie sat with Total and representatives of the president to reach the deal of shs 2.2 trillion from the initial 4.4 trillion. There was a handshake ✋ this time around the president being on the recieving end. I’ve got the verbal evidence.

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